Digital Marketing Agency Business Description

A digital marketing agency helps businesses increase their online presence and attract customers through online marketing campaigns. These agencies manage advertising, create content, handle social media, optimize websites for search engines, and run email marketing programs for their clients.

Most digital marketing agencies start by offering one or two services and expand their offerings as they grow. Small agencies often begin with 1-3 employees, including the owner, who typically handles both client work and business operations, making this an accessible business to start. The work can be performed remotely, which reduces initial overhead costs and allows agencies to serve clients anywhere.

Different business models exist in the digital marketing industry:

• Full-Service Model: Provides all marketing services under one roof, from website design to social media management and advertising campaigns
• Specialized Service Model: Focuses on one area like search engine optimization (SEO) or social media marketing

Related: Checklist To Start A Business

How Do Digital Marketing Agencies Make Money?

Digital marketing agencies’ main revenue source is providing specialized services designed to align with consumers’ online habits. Clients are charged with the development and execution of marketing strategies that may include enhancing a website’s visibility in search results, orchestrating advertising campaigns, or boosting social media interactions. These services can be billed per project or through ongoing monthly fees, which are determined by the scope and length of the marketing efforts.

Industry Statistics

Digital marketing agencies are part of NAICS code 541810: Advertising Agencies, which includes businesses that plan, create, and manage promotional campaigns to build brand awareness and increase sales.

Here are the numbers that tell the story of the digital marketing industry.

Digital Marketing Agency Industry Size & Growth: The digital marketing industry experienced strong expansion through 2021, with a peak growth rate of 25%. While 2022 saw a moderation of 15% growth, this still exceeded the historical average of 13% from 2015 to 2020. The industry showed signs of cooling in 2023 but is expected to grow by 12% annually due to businesses increasing their digital marketing budgets and shifting away from traditional advertising methods (Promethean Research).

Number of Digital Marketing Agencies: The industry consists of over 45,000 agencies across North America. The landscape is dominated by smaller firms, with nearly two-thirds operating with 10 or fewer employees. Mid-sized agencies with 11-50 employees make up 27% of the market. The remaining segment includes larger agencies, often operating as holding companies that manage multiple specialized marketing firms (Census Bureau).

Digital Marketing Agency Profit Margins: Profit margins vary by agency size, with an industry average net profit of 15%. Smaller agencies with fewer than 10 employees typically achieve the highest margins. As agencies grow beyond 25 employees, average profit margins settle around 13%. Employee costs represent the largest expense, followed by software and tools at 3.7% of revenue (Promethean Research).

Costs To Start a Digital Marketing Agency

Starting a digital marketing agency typically costs between $2,000 and $25,000. The lower end represents a home-based operation with minimal equipment, while the higher end includes office space and additional staff.

Here are some of the more expensive items to plan for when starting a digital marketing agency.

Office Space and Equipment: A dedicated office space can range from $1,000 to $5,000 per month, depending on location and size. This includes utilities, internet, and basic office furniture. Some agencies start from home to reduce this expense.

Software and Tools: Marketing software, design programs, analytics platforms, and project management tools typically cost $200 to $1,000 monthly. Many tools offer monthly subscriptions rather than requiring large upfront purchases.

Computer Equipment: Professional-grade computers, monitors, and peripherals for digital marketing work range from $1,500 to $4,000 per workstation. This includes backup storage systems and necessary accessories.

Website and Portfolio: A professional website with hosting, domain registration, and initial content development ranges from $500 to $3,000. This serves as your agency’s primary marketing tool and showcase for potential clients.

These estimates provide a general idea of startup costs. Actual expenses will vary based on location, size, and business needs.